China Economic Update – 16 June 2014

Partial economic indicators suggest that China’s economy has stabilised in recent months. These trends remain in line with our expectations, meaning that our forecasts for economic growth remain unchanged at 7.3% in 2014 and 7% in 2015.

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Partial economic indicators suggest that China’s economy has stabilised in recent months. These trends remain in line with our expectations, meaning that our forecasts for economic growth remain unchanged at 7.3% in 2014 and 7% in 2015.

Beijing has encouraged local governments to speed up budget spending, announced investment plans in the railways and social housing sectors and introduced targeted cuts to the reserve requirements for some banks – however the People’s Bank of China (in particular) remain resistant to broader stimulus measures.

Moves to allow local governments to issue bonds (initially a pilot scheme limited to 10 better managed authorities) could begin to reduce concerns around capacity of governments to service debt as well as reduce their dependence on shadow banking. That said, careful supervision will be necessary, as mismanagement and scandals in the 1990s resulted in the current regulatory constraints.

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